November 27, 2020 - New Zealand

Inland Revenue Consultation on “Negative Interest” Payments

Inland Revenue has released an exposure draft for public consultation. The exposure draft sets out Inland Revenue’s guidance relating to the application of the Resident Withholding Tax (RWT) and Non-Resident Withholding Tax (NRWT) rules to situations where negative interest payments are made, concluding that such payments will not be subject to withholding taxes.

The exposure draft is available here.

Who needs to read it? Why?

Banks and financial institutions should carefully read the exposure draft and consider taking the opportunity to provide feedback through this public consultation so that Inland Revenue can ensure that their final guidance is fit for purpose.


What does it cover?

The scope of this exposure draft only extends to banks and financial institutions and is not intended to address tax issues in relation to negative interest generally.The guidance answers the question of whether the RWT and NRWT rules apply to situations where negative interest payments are made on an advance of money or a loan.

  • Negative Interest payments are payments made as part of a term of a financial transaction where money is advanced at a negative rate of interest. Negative interest effectively reverses the usual position for interest where the borrower pays interest to the lender.
  • IRD has concluded that negative interest payments will not be subject to withholding taxes, because the RWT and NRWT rules only apply where a payment is made to a person by another person for money lent. Negative interest is not paid for money lent as it is paid by to the person receiving the money and is not a return to the lender.

Our view

New Zealand has never had negative interest rates. With the prospect of negative interest rates now on the horizon, having clear guidance on the application of the RWT and NRWT rules to situations where negative interest is charged will give banks and financial institutions clarity regarding their compliance obligations.

What next?

Submissions close on Friday 15 January 2021. Final guidance will be issued by Inland Revenue afterwards.If you have any questions in relation to Inland Revenue’s exposure draft or any other tax related queries, please contact one of our experts.

Read full article at: